Home insurance rates rising

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EAGLE COUNTY, Colorado - A lot of local residents are getting an unpleasant surprise when they receive their first homeowner's insurance bills for the year - higher premiums.

Not everyone is getting bigger bills - some homeowners are actually seeing premium decreases this year - but some property owners are being dropped by their insurance companies. The reason, at least in part, is the destructive wildfires that hit the state's Front Range last year.

Those fires resulted in an estimated $538 million in property losses. A big part of that total was covered by insurance, and several companies writing claim checks took some serious hits to their bottom lines.

Patty Hood runs the Hood Insurance Agency in Eagle. That company is an independent agency, which means Hood represents several insurance firms. Hood said the companies she represents haven't raised rates to her clients this year. But, she said, other insurance companies - especially those that insured a lot of homes where the wildfires did the most damage - were hit hard.

Insurance companies need to have cash reserves on hand to pay claims, Hood said. When those reserves are depleted, they're often replenished with higher premiums to customers.

Kelly Hollis, an agent at the Eagle-based Montag Group, said she's seen, and heard about, a lot of premium increases.

"Risk is spread across a state," Hollis said, adding that Front Range hail storms have in the past affected auto insurance rates on the Western Slope.

The Montag Group represents Farmers Insurance, and Hollis said homeowner's insurance rates have gone up in the neighborhood of 10 to 20 percent. Some companies have stopped writing new policies altogether, and others aren't renewing existing policies.

But it isn't just wildfires or hail storms that drive rates.

Noel Harris, owner of Wall Street Insurance in Edwards, said there are a lot of factors that drive rates. But the bottom line is that insurance companies are in business to make money. That means companies need more revenue coming in than they pay in claims.

Harris said good companies will budget roughly 40 percent of their premium revenue to cover losses, with about 50 percent for expenses, leaving roughly 10 percent for profit.

When that formula is out of whack - usually due to unusually high losses - insurers need to adjust.

"With wildfires, companies with a lot of exposure had significant claims, and their loss rates went to 60 or 70 percent," Harris said.

For national companies, heavy losses can happen just about anywhere. Hurricane Sandy last fall is driving at least some rate increases in Colorado, Harris said.

Other factors in setting rates can range from whether a homeowner has a fire-suppression sprinkler system to a person's credit rating.

So what can a homeowner do?

Hollis suggested some customers might want to increase their deductibles - the amount of money a homeowner has to pay before the insurance company pays on a claim.

Harris advised homeowners to think carefully before filing a relatively minor claim. If someone has a $2,500 deductible, it doesn't make sense to file a claim for a $2,600 loss, he said.

But rates ultimately boil down to models the companies have, Harris said. The right improvements to a home in the right neighborhood can actually save some money come policy renewal time.